Smaller Banks Dwindling As Competition Escalates

May 08, 1994|By American Banker.

WASHINGTON — The ranks of community banks are shrinking fast.

Last year, the number of banks with assets of less than $1 billion slipped by 504 to 10,575-the lowest level in at least 60 years. The number of larger banks, meanwhile, changed little, rising to 382 from 380 in 1992.

Bankers and industry observers pin the drop in small banks on several factors: the loosening of interstate branching regulations, high stock prices and earnings of super-regional banks-which has made it easier for them to buy smaller institutions-and the sheer volume of regulations with which bankers must comply.

The experts contend consolidation of small banks will pick up only as restrictions on interstate branching and banking are wiped out.

"I think consolidation is a freight train coming down the tracks," said Carl Schmitt, chairman and chief executive of University National Bank and Trust Co., a $410 million-asset bank based in Palo Alto, Calif.

"We are going to see a tremendous reduction of banks and a lot of that reduction is going to come among the banks below $1 billion," said Bert Ely, a banking analyst based in Alexandria, Va.

Ely projects there will be 5,000 to 6,000 banks and thrifts in 10 years, down from 13,221 now.

Certainly, the number of small banks has been falling faster and faster.

According to the Federal Deposit Insurance Corp., the number of community banks dropped by 417 in 1991, by 470 in 1992 and by 504 last year. In the meantime, the amount of assets held by the group shrank to 27.3 percent of the industry's $3.7 trillion in assets at year's end from 29 percent in 1992.

Julian Hester, executive director and chief executive of the Community Bankers Association of Georgia, said he's getting calls from community banks wondering whether he knows which are for sale. He said many feel if they can grow to $100 million, they can achieve economies of scale.

"A lot of them are going out and finding another community bank," he said.

The steady decline of community banks troubles Kenneth Guenther, executive vice president of the Independent Bankers Association of America.

"It reflects the fact that the overall climate, particularly the overall regulatory climate for some banks, is a disincentive to continue banking," he said.

"The rules have been written that encourage consolidation," said Schmitt. "The layering of rules that have come out in the last year and a half is unbelievable."

Schmitt said small banks that don't differentiate themselves from other institutions are bound to disappear.

"The institutions that will be around will be the ones that figure out how to create value," he said.